Tiffany’s sparkle fades, becomes show-me story

NEW YORK (MarketWatch) — Adding to signs that there may be some signs of luxury sector slowdown, high-end jewelry retailer Tiffany & Co. on Thursday warned over profits for this year and next after it reported disappointing holiday sales.

The news capped a year of uneven results and second straight disappointing holiday season at Tiffany
TIF, +0.74%
amid macroeconomic pressures in markets such as Europe. In the U.S., declining European tourists and expected lower Wall Street bonus, coupled with the snowstorm Sandy, also hurt Tiffany, as well as other luxury retailers such as Saks Inc.
US:SKS
that have a heavier concentration of top-selling stores in the Northeast region, analysts said. Department stores may not be a good bet for 2013.

“There has been a slowdown at the high end,” said Lazard Capital Markets analyst Jennifer Davis, adding the general uncertainty about the fiscal cliff resolution during the holiday season likely also affected luxury shoppers’ desire to spend. Retailers start new year on a jittery note.

However, there remains mixed views of wether the luxury sector overall is slowing down. For instance, some analysts said demand for Tiffany’s higher priced engagement jewelry remains strong. But its entry-level silver collection, usually a way for the company to target aspirational and younger shoppers, has been hurt and is facing competing interests from shoppers buying things such as iPad, they said. Its lower-priced silver products are more profitable than the company average, analysts say.

“Luxury demand is again picking up and Tiffany seems more concentrated upon revamping its lower-end product line-up,” said Oppenheimer analyst Brian Nagel. Tiffany “is a show-me story.”

Tiffany’s results contrasted with its lower-priced rivals including Signet Jewelers
SIG, -0.52%
, which on Tuesday reported a 3.3% increase in holiday same-store sales. Its Kay Jewelers unit posted a 5.8% increase while the Jared chain saw a 4.8% gain. Zale Corp.
US:ZLC
, meanwhile, on Thursday said its same-store sales rose 2.3%, and it expects to achieve profit for fiscal year 2013.

“While we believe lack of silver-product innovation and pricing remain a key issue, we do not believe the category single-handedly drove the holiday sales weakness” at Tiffany, said William Blair analyst Amy Noblin. “We would like to see the top line stabilize and a strategy on silver to turn more constructive.”

Tiffany also has faced increased competition as designers such as Ralph Lauren Corp.
RL, -0.97%
have also expanded in its own luxury jewelry and watch collection, analysts said. At the same time, shoppers are buying second-hand luxury jewelry pieces at an unlikely channel: pawn shops. Pawn shops enter holiday shopping fray.

Pawn Shops Enter Holiday-Shopping Fray

(3:19)

As retailers like Tiffany, Saks, Best Buy and Wal-Mart vie for last-minute holiday sales, customers are being drawn away by a growing crop of competitors: pawn shops. Andria Cheng has details on Lunch Break. Photo: Getty Images.

Tiffany’s stock has risen 1.2% in the past year, compared with a 35% jump at Signet and a 51% surge at Zale. Its performance also lagged the 24% gain of the S&P Retail Index during the same period.

Tiffany said its worldwide sales for the two months ended Dec. 31 rose 4% to $992 million. Comparable sales excluding currency impact were flat, versus analysts’ estimates of a 2% to 4% increase. The company said the results were at the low end of its expectations.

The weak spots were in the U.S., where same-store sales dropped 2% in the New York flagship, about 8% of its total, and in branch stores, the New York-based company said. In Europe, comparable sales minus currency impact were flat. Asia Pacific region was a bright spot, with comparable sales increasing 7%. Japan, however, also saw slowing sales.

The company said full-year per-share profit will be at the lower end of its prior forecast of $3.20 to $3.40 a share.

Tiffany & Co.

Tiffany & Co. blue box

Citing “uncertainty” about the economy in all of its major markets, Chief Executive Michael Kowalski forecast 2013 earnings growth between 6% and 9%.

The 6% to 9% gain would imply per-share profit of $3.40 to $3.50 a share, Nagel of Oppenheimer said. Analysts surveyed by FactSet were looking for profit of $3.27 a share for the current fiscal year and $3.73 for the next fiscal year.

“The stock will remain challenged over the near term, as sales continue to underperform other luxury brands and the timeline for a profitability inflection is pushed further into 2013,” said ISI Group analyst Omar Saad.

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